Stagflation Fears Subdue Markets

Markets remain subdued and have fallen back a little as the World Bank issued a stark warning this week that there is a ‘considerable’ risk for stagflation.

What is stagflation?

This is when inflation is high but economic growth is slowing combined usually with unemployment rising.  Think of stagflation as ‘Recession-Inflation’.

Why is stagflation a big problem?

Put yourself in the position of the Governor of the Bank of England or the Prime Minister:

• As Governor of the Bank of England, your main role is to control inflation and maintain a stable economy.  The Bank of England and other central banks would usually look to control inflation by increasing interest rates.
• As Chancellor or Prime Minister, you want to avoid an economic recession and have a growing economy to increase quality of life, increase employment and increase wealth for the good of all and security of the nation.  To do this, you want low interest rates so that the cost of borrowing for us all is low, knocking on to house price rises and businesses able to borrow, invest and develop their businesses.

Rock and a Hard Place

We currently have high inflation i.e., spiralling costs of raw materials, food, goods, and services, so an interest rate increase is needed to control inflation but by increasing interest rates, this puts pressure on all borrowing costs, both personal borrowing, loans, credit cards and mortgages as well as increased business finance costs, raising capital, business investment, development and growing business i.e., a lack of the same leads to recession.

Comment

The World Bank suggests that stagflation could be here for up to a decade.  You need to look for and invest in stocks or in investments funds that have exposure to Discount Supermarkets (consumer staples as we all need to eat), Healthcare (we all need to be healthy), Food and restaurants, Freight and logistics (transport), DIY and Repairs (real estate), Consumer staples in general, Utilities people still need power although it may be from greener sources now) and Discount Retailers (no more expensive shopping), it’s back to ‘Primani’ and the local market stalls just like the 1970s and 1980s.

Watch/Read Our Video:  Recession Invest